Oil & Gas Markets Outlook

National Ocean Industries Association

Dr. Helen Currie, Senior Economist

January 31, 2017
2
 Oil Market

3
 Global Oil Market: The Past Decade
Global Oil Prices and Volatility
% Volatility
Price/Bbl
100
$150
Brent Crude Oil Price
(left hand scale)
$125 80

$100 60

$75
40
$50

20
$25
Oil Volatility Index
(right hand scale)
$0 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

4 Source: Bloomberg
 Global Oil Market: Rebalancing and Recovery Imminent?
Rebalancing Begins in 2017: OPEC Cuts Will Help to Lower Global Inventories (MMBD)

99 2.0

98 Production
1.5
(left axis)
97 1.0
Production
w/Full OPEC +
96 non-OPEC cuts 0.5

95 0.0
Bars are Inventory
Build/Draw
94 Demand (0.5)
(right axis)
(left axis)
93 (1.0)
Inventory Draw w/Full OPEC
+ non-OPEC cuts
92 (1.5)
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
2015 2016 2017

5 Source: COP, IEA, OPEC

 U.S. Crude Oil Production Expected to Grow
EIA Projects Significant Upside to U.S. Oil Production with Additional Efficiency and
Technological Improvements (MMBD)
15
High Resource &
Technology

EIA Base Case

10
Prior Base Case

0
2005 2010 2015 2020 2025 2030

6 Source: U.S. Department of Energy, EIA Annual Energy Outlook 2017

 U.S. Crude Oil Production Growth Led by Onshore Fields
Lower-48 Offshore vs Onshore Oil Production (MMBD)
Challenges to Offshore
14
Onshore High development vs Onshore
12
Case Unconventional Plays:

10
High initial capital
commitments
8 Onshore
Relatively long lead times
6
Less flexibility
4

Offshore High Case

Greater complexity
2
Offshore
0
2015 2020 2025 2030

7 Source: U.S. Department of Energy, EIA Annual Energy Outlook 2017

 U.S. Unconventional, Light Tight Oil Plays Account for Future Growth
Lower-48 Oil Production by Region (MMBD)
Key Issues in Projecting
4.0 Future Tight Oil Supply:
3.5
High Resource/Technology
Pace and Magnitude of
Cases
3.0
Permian
additional technology &
2.5 efficiency improvements
Bakken,
Niobrara/Rockies
2.0
Cost escalation as activity
1.5 Gulf Coast
accelerates
1.0
East & West Coasts Infrastructure needs
0.5
Midcontinent Environmental compliance
0.0
2015 2020 2025 2030

8 Source: U.S. Department of Energy, EIA Annual Energy Outlook 2017

 Lower-48 Unconventional Oil Breakeven Costs
Contribution to Drop in Median Breakeven Cost of Five Higher well productivity
Major U.S. Unconventional Plays ($WTI/bbl)
o High-grading
$90
o Well design (lateral length,
$80 proppant intensity)
$70
$60 Cost deflation
$50 o Equipment
o Labor
$40
$30
$20 Efficiency gains
$10 o Less waste in materials and
equipment downtime
$0
3Q 2014 Higher Cost Deflation 1Q 2016 Efficiency o Better integrated supply chain
Productivity Gains

9 Source: ConocoPhillips based on IHS Energy Why US Crude Oil Supply Is Ready to Resume Growth November 2016
 Incremental Global Oil Supply for 2020

Higher Cost Supplies Must Compete with Relatively Low Dost U.S. Tight Oil
(Indicative Volume, Cost Range by Category)
$140

$120
Real 2015 $/bbl

L48 Tight Play Existing OPEC Deepwater Oil Sands Other Non-OPEC

Other Deepwater
$100

Other Non-OPEC
$80

China
U.S.

Other
OPEC
Tight
Oil Sands Oil
$60 Brazil
US & GOM

Algeria U.S. Tight Oil Canada

$40 Venez.
Ghana Nigeria
U.S.
Tight Azerbaijan
Russia Oil
$20 Saudi Arabia Mexico
Existing Gulf States

$0
65 70 75 80 85 90 95 100
Million Barrels per Day

8 Source: ConocoPhillips Chief Economists Office, Rystad Ucube; gross production growth before declines, boxes are indicative of the types of assets from each category not a fully inclusive list
 Global Oil Demand
Global Oil Demand Growth
2.0 Global oil demand has responded
positively to low oil prices
1.6 Total Growth
Annual Growth in MMBD

Other Non-OECD
Demand grew solidly in 2015-2016
1.2

India
0.8 Ongoing risks to oil demand growth
China Decelerating global economy
Anti-trade policies
0.4
Other OECD
Strong U.S. dollar weakens
0.0 U.S. demand response outside U.S.

Removal of subsidies in many

(0.4) developing countries hurts
demand when oil prices recover
(0.8)
2012 2013 2014 2015 2016 2017f 2018f
11 Source: U.S. Department of Energy, EIA, Short-Term Outlook, January 2017
 Global Economy: Slowing Growth Prospects
Scenarios for Global Growth
The IMF consistently lowered growth
% real GDP, PPP
4.0 projections for 2015 and 2016
Slowing Growth
Fiscal
in the Global
Loosening
The IMF lowered its GDP forecast for
3.8 2016 by 0.2% in its January 2016
Economy (10%)
Brexit slows
forecast.
3.6 Base (40%) EU (5%)
Downside risks to the economic
outlook:
3.4 Secular Stagnation (10%)
o Secular stagnation
China Tightens (15%)
o Hard landing in Chinas
3.2 slowdown
o European immigration crisis
3.0 and Brexit
Strong US Anti-
Trade Stance (3%) o Anti-trade policies
2.8
2015 2016 2017 2018 2019 2020
12 Sources: Oxford Economics
 Natural Gas Markets

13
 Resilience of U.S. Shale Gas Production for Major Plays
U.S. Shale Gas Production Marcellus Type Curves
from Top Unconventional Plays 7,000
6,000
50 5,000
Permian

MCFD
4,000
3,000
Niobrara 2,000
40 Eagle Ford 1,000
0
Bakken 1 3 5 7 9 11 13 15 17
Utica Production Month
30 Haynesville Associated
BCFD

Marcellus Gas & Legacy Permian Associated Gas Type Curves

Production 700
600
20 500

MCFD
400
300
Shale Gas 200
10 Plays 100
0
1 3 5 7 9 11 13 15 17
Production Month
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2015 2013 2011

14 Source: EIA Drilling Productivity Report, January 2017. Type Curves based on data from DrillingInfo
 North American Natural Gas Production Outlook
The Future of North American Production is Shale Marcellus is the Growth Leader
(Bcf/day) Growth in production 2016-2030
140 20 (Bcf/day)

120
15
100
Shale Gas 10
80

60 5

40 Gas from Tight Oil

0

Utica

Bakken
Permian
Canada

Haynesville
Eagle Ford

MidCon
Marcellus
20
Other

0
2015 2018 2021 2024 2027 2030

15 Source: Wood Mackenzie; U.S. and Canada production combined

 U.S. Natural Gas Demand Outlook
Almost 9 Bcfd (70 MTPA) Lower-48
Demand Growth Led by Export Markets and Power Liquefaction Capacity Online by 2020 (Bcfd)
(Bcfd)
18 8 Gulf Coast East Coast
16 Transport

Other
14
6
12 Res/Comm
Other
10 Industrial Power
4
8
Power
6
Mexico
Mexico 2
4

2 LNG exports LNG exports

0 0
2016-2020 2020-2030 2016 2017 2018 2019 2020

Source: IHS Energy, December 2016 N.A. Natural Gas Brief. The use of this content was authorized in advance by IHS Markit. Source: Wood Mackenzie
16 Any further use or redistribution of this content is strictly prohibited without written permission by IHS. All rights reserved
 Global LNG Supply-Demand Balance
Global Cumulative Growth 2015-2025

180
Net growth
160
Other Pacific
140
Other
120 Europe
MTPA

Australia
100 Americas

80

60
Other Asia
40 U.S.
Existing Excess
20
New Excess
0 Other Atlantic Japan, Korea, Taiwan
Middle East
(20)
Supply Demand Excess Supply

Source: IHS Energy. The use of this content was authorized in advance by IHS Markit.
16 Any further use or redistribution of this content is strictly prohibited without written permission by IHS. All rights reserved
 Summary
Oil
Prices may continue to experience elevated
volatility
o Uncertain government policies create headwinds for oil
markets
U.S. production growth expected to be focused
onshore
o Ongoing improvements to technology, productivity and
costs will drive growth in U.S. Light Tight Oil

Natural Gas
Shale gas will continue to be a game-changer
o U.S. and Canada will continue to be well supplied by
shale resources
Global gas markets will be more highly linked as
LNG trade grows

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